Delhi High Court
Delhi Jal Board vs Subhash Pipes Ltd. on 15 February, 2005
Equivalent citations: 2005(2)ARBLR213(DELHI)
Author: Pradeep Nandrajog
Bench: Pradeep Nandrajog
JUDGMENT Pradeep Nandrajog, J.
1. Present objections under Section 34 of the Arbitration and Conciliation Act, 1996 lay a challenge to the award dated 12.04.2002 published by Sh. K.D. Bali, sole arbitrator on a dispute referred to him pertaining to the claims and counter-claims of the parties, arising out of Contract Agreement No. 6(1992-93).
2. Respondent was the principal claimant. Petitioner was the respondent and had some counter-claims.
3. Learned arbitrator took note of the following admitted facts:
(a) Supply order was dated 26.08.1992.
(b) Date of start of commencement of supply was 25.09.1992.
(c) Contract stipulated date of completion was 25.09.1993.
(d) Work as per contract was completed on 10.03.1995.
4. Learned arbitrator noted that as per the contract between the parties, claimant was to be supplied certain raw materials from which pre-stressed pipes had to be fabricated by the claimant and supplied to Delhi Jal Board. Learned arbitrator also noted that the contract between the parties had certain reciprocal obligations, prior compliance by one party was a condition precedent for the other to comply with its reciprocal obligation. Learned arbitrator with reference to Annexure C-9 also took note of the fact that Delhi Jal Board extended time for completion of the supply after fabrication, without levy of liquidated damages.
5. Claim of the claimant was under various heads being:
(a) Outstanding payments for work done. This claim had two heads; first head was for price as per contract stipulated rates and the other towards escalation.
(b) There was claim for refund of the earnest money along with interest.
(c) There was a claim for refund of the rebate which the contractor claimed was wrongly debited to its account.
(d) There was a claim for compensation of overheads and loss of profits.
(e) There was a residual claim for interest.
(f) Costs were claimed.
6. Delhi Jal Board had counter-claims being:
(a) Amounts paid to other contractors on account of escalation due to the alleged delays of the claimant.
(b) Compensation towards loss of credibility of Delhi Jal Board.
(c) Claim on account of MODVAT benefits availed by the contractor.
(d) Claim for interest on MODVAT benefits.
(e) Claim for deployment of staff, tools and machinery during the period contract over ran.
(f) Costs of the arbitration.
7. The real genesis of dispute between the parties was as to who was responsible for delay. Learned arbitrator took note of the fact (Annexure C-9) that Delhi Jal Board extended time for completion of the contract without levy of any compensation on the contractor. Learned arbitrator took note of the fact that the contractor could not commence any work till drawings were approved by Delhi Jal Board. Learned arbitrator took note of Annexure C-11 to the effect that the contractor submitted the drawings and designs for approval on 03.11.1992 and approval was granted somewhere in April 1993. Learned arbitrator took note of Annexures C-71, C-72 and C-73, being contractor's letters dated 12.11.1992, 01.01.1993 and 11.03.1993 praying for expeditious decision on the drawings and approval thereof.
8. Learned arbitrator took note of Annexures C-12, C-20, C-77, C-78, C-79, C-80, C-82, C-83 and C-84 for purposes of ascertaining whether there was delay in placing orders for M.S. Specials. Learned arbitrator took note of Annexures C-23 to C-29, C-69, C-70, C-85 to C-88 and C-88A as also C-31 to C-33 in the context of whether there was delay in giving alignments.
9. In light of the evidence aforenoted, learned arbitrator held against Delhi Jal Board to the effect that:
(a) There was delay in approval of drawings and designs.
(b) There was delay in supply of raw materials by Delhi Jal Board.
(c) There was delay in placing orders for M.S. Specials.
(d) There was delay in supply of M.S. Plates.
(e) There was delay in giving alignments.
10. These are pure findings of facts based on evidence and would be immuned from challenge unless it is shown that the learned arbitrator has ignored a term of the contract or it is shown that the learned arbitrator has acted contrary to an express term of the contract.
11. A perusal of the objections filed would reveal that Delhi Jal Board is challenging the finding on the basis of placing reliance on evidence and no more.
12. Findings of fact recorded by the learned arbitrator being immune under the circumstances aforenoted, issues raised in the objections would have to be considered in said context.
13. Claimant's Claim No. 1 has been allowed in sum of Rs. 26,61,851.34 as against claim in sum of Rs. 1,21,55,427.96.
14. Learned counsel for objector states that the learned arbitrator has not stated any reasons nor indicated the basis on which the sum of Rs. 26,61,851.34 has been arrived at.
15. Reasons of the learned arbitrator pertaining to Claim No. 1 are as under:
"The details of the claim have been given in Appendix-I. XXX XXX XXX The respondents did not rebut the figures given in the Appendix-I. The respondents also did not dispute the correctness of the running bills and escalation bills placed on record.
XXX XXX XXX The respondents have not denied the details given in Appendix-II nor the escalation bills have been disputed in any manner. Thus, the same are held to be correct."
16. From the respective stands of the parties before the learned arbitrator, it has to be noted that Delhi Jal Board disputed liability to pay any escalation by predicating a stand that it was not responsible for delay. Delhi Jal Board did not challenge the correctness, i.e. the quantification of the escalation claim in the context of the mathematical calculations. As noted above, from the reasoning of the learned arbitrator, having held against Delhi Jal Board on the basic issue of delay, since quantification was not in dispute, he proceeded to award the sum of Rs. 26,61,851.34 under Claim No. 1.
17. Under the circumstances, it cannot be said that the learned arbitrator has acted against public policy or has acted beyond his mandate. It has also to be noted in this context and this would be relevant for purposes of the counter-claim of Delhi Jal Board, learned arbitrator while dealing with Claim No. 1 has allowed the claims of the contractor as reduced by it, vide Annexure C-100, which annexure would reveal that benefit of MODVAT which was available in law to the contractor was passed on to Delhi Jal Board and contractor had reduced said amount from its claim.
18. On Claim No. 2, holding that the work was admittedly completed and commissioned, learned arbitrator held the contractor entitled to the earnest money in sum of Rs. 1,00,000. Nothing has been shown to this Court as to in what manner the said finding is contrary to the mandate of the arbitrator. I may only state that as per agreement, guarantee period was 12 months. As noted above, contract was completed by 15.03.1995. Award was pronounced on 12.04.2002. Obviously, guarantee period was over. No evidence was led that any defects were noted in the guarantee period.
19. Claim No. 3 was for refund of rebate debited to the account of the contractor by Delhi Jal Board in sum of Rs. 35,865.93. Learned arbitrator took note of the fact that 0.10% rebate was to be enjoyed by Delhi Jal Board on the bills provided they were paid within 10 days of submission. Learned arbitrator recorded a finding of fact that there was delay in payment of the running bills. He rightly held that Delhi Jal Board could not avail the rebate. I may note that the learned arbitrator applied himself on the issue evidenced by the fact that he realized that the rebate deducted was actually Rs. 8,137.93, the sum which he allowed under Claim No. 3.
20. Claim No. 4 of the contractor in sum of Rs. 56,55,270.50 was on account of loss of overheads and loss of profits for the extended period of the contract. Learned arbitrator, in reference to the certificate of the chartered accountant of the claim (Annexure C-107), noted that gross profit percentage of the contractor varied from 13.17% to 42.75% and overheads varied from 10.49% to 3937%. Taking note of the aforesaid, learned arbitrator held:
"In Government departments, it is a practice that the profit percentage is taken to be 10% and overheads are between 3 to 7%. Thus, I hold that it would be just and reasonable to allow profits and overheads to the tune of 12% (composite) for the amount of supply made in the extended period of contract."
21. On the basis of the reasoning aforenoted, learned arbitrator awarded a sum of Rs. 17,30,180 to the contractor.
22. Mr. Arvind Nayar, learned counsel appearing for Delhi Jal Board argues that the learned arbitrator has not only acted perversely but has acted beyond his mandate and the award pertaining to Claim No. 4 is liable to be set aside on said count. Elaborating the submission, learned counsel urged that under Claim No. 1, escalation was allowed to the contractor for the extended period of the contract. Counsel urged that loss of profit is awarded where it is held that there is a wrongful termination of the contract and thereafter, for the unexecuted value of the contract, opposite party is recompensed with.
23. Mr. Markanda, learned senior counsel for the contractor urges, by placing reliance on the decision of the Supreme Court reported as AIR 1984 SC 1703--A.T. Brij Paul Singh v. State of Gujarat, that the Supreme Court held that 15% loss of profit could safely be granted in such situations. Learned senior counsel also relies upon a decision of the Division Bench of this Court reported as 2001(1) Arb. LR 289 (Del.) (DB)--Delhi Development Authority v. S.S. Jetley.
24. In the instant case, it has to be noted that the contractor completed the work. The department did not terminate the contract, leaving certain work as unexecuted. I fail to understand as to how loss of profit was attracted to the present situation.
25. The learned arbitrator has, in my opinion, proceeded on a wholly fundamentally erroneous basis to allow claim of loss of profit.
26. Decision of the Supreme Court in A.T. Brij Paul Singh's case (supra), would reveal that the State of Gujarat had terminated the contract which required the contractor to provide cement concrete surface to the road from Rajkot to Jamnagar from miles 40 to 80. The Hon'ble Supreme Court held that since the contractor, for similar works, in another suit in reference to the books of accounts proved 15% profit, it was safe to grant 15% of the unexpired value of the contract as damages towards loss of profit since it was established that the State of Gujarat had wrongfully terminated the contract.
27. Reliance was placed on para 8 of the decision in S.S. Jetley's case (supra), to bring home the point that compensation under Clause 10(CC) with which the Division Bench was concerned was held to be distinct from a compensation for loss of profit.
28. A perusal of the decision of the Division Bench of this Court in S.S. Jetley's case (supra), would reveal that the Division Bench was dealing with the contention that once a contractor is compensated for escalation under an escalation clause of the contract, being Clause 10(CC) in said contract, could he have a claim predicated on prolongation of a contract under other heads. The Division Bench held that claim due to prolongation could be maintainable on account of office establishment, expenses of idle labour, idle machinery and shuttering, etc.
29. The decision in S.S. Jetley's case (supra), was not dealing with an issue of loss of profit at all.
30. It is trite that a given fact or a circumstance may give rise to multifarious claims and merely because the claims are predicated on same set of facts would not mean that the claims are overlapping. In a works contract, material is one of the inputs which determines the price of the contract. There would be a labour element as well. These are the direct attributes in execution of a work contract but there would be a controlled exercise by the contractor which would be centered in his head office or may be at the site office. Engineers may have to be deputed at site. Watch and ward staff may be deputed at site. Tools, tackles, plant and machinery may have to be mobilized at site. If there is prolongation of the contract, escalation on account of increase in price of material would be a claim distinct than the claim for idle machinery, tools and tackles for which the contractor may claim compensation on account of depreciation or interest on blocked capital. Similarly for labour deployed at site, if there is no labour escalation provided, due to prolonged stationing of the labour at site, a distinct claim for compensation could be laid. Similarly, if supervisory staff is stationed at the site of the works contract, claim for salary paid to the staff during the prolonged period of contract would be another distinct claim.
31. Division Bench judgment in S.S. Jetley's case (supra), dealt with a situation where material escalation was compensated to the contractor under Clause 10(CC) but he had a claim for idle labour, staff, machinery, shuttering and ancillary charges due to prolongation of the contract.
32. Be that as it may, since there is no termination of the contract and the contractor has been permitted to complete the full volume of the work and has been paid for the entire value of the work done, question of compensating him for loss of profit does not arise at all.
33. Learned counsel for the contractor urged a submission in the alternative. Drawing attention of this Court to the reasoning of the arbitrator, counsel urged that the learned arbitrator took note of the fact that Claim No. 4 had two elements. The first being loss of profits and the other being overheads incurred by the contractor during the period the contract got prolonged. Counsel urged that the second limb of the claim was in any case to be allowed.
34. Reasoning of the arbitrator, as noted above, records that 10% profits are taken into consideration by Government departments while arriving at the justification of the rates and overheads are taken between 3 to 7%. Learned arbitrator has awarded 12% (composite) to the contractor. Since award cannot be sustained in so far as loss of profits is concerned, amount awarded has to be served.
35. In A.T. Brij Paul Singh's case (supra), Their Lordships of the Supreme Court noted that Hudson's in his commentaries "Hudson's Building and Engineering Contracts, 1970, 10th Edition" observed that 3 to 7% of the total price of the contract could safely be apportioned towards head office and overheads. I would accordingly hold that the mean of the two, i.e. 5% would be a safe sum to determine overheads. Since admittedly, contract has got prolonged due to acts attributable to Delhi Jal Board, Claim No. 4, as awarded is modified, in that, it is reduced from 12% to 5%. As per the award, amount of supply made during the extended period was in sum of Rs. 1,44,26,493.61. On this amount, 12% as payable by learned arbitrator was in sum of Rs. 17,31,180. 5% amount would come to Rs. 7,21,324.68. I accordingly modify award under Claim No. 4 and reduce it from Rs. 17,31,180 to Rs. 7,21,324.68.
36. Under Claim No. 5, learned arbitrator has awarded interest @ 18% per annum. Learned arbitrator has noted that the contractor was a small scale industry and was covered by Sections 4 and 5 of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.
37. Learned arbitrator has also taken note of Section 31 of the Arbitration and Conciliation Act, 1996 which specifies interest @ 18% per annum from the date of award till realization unless the arbitrator decides otherwise.
38. Taking guidance from the spirit of the Arbitration and Conciliation Act, 1996 and the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, learned arbitrator has awarded interest @ 18% on Claim Nos. 1, 2 and 3 from 01.04.1996, i.e. one year after the completion of the work till date of payment. On Claim No. 4, interest on said rate has been awarded from 12.04.2002.
39. Learned counsel for the objector states that this Court should take note of the falling interest rates and should reduce the same.
40. Delhi Jal Board would be better advised to effect timely payment for the reason that the Arbitration and Conciliation Act, 1996 gives statutory recognition to awarding of interest @ 18% per annum. Benefit of legislation in favor of small scale units under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 cannot be denied to the small scale entrepreneurs.
41. I do not find that the interest awarded is contrary to law.
42. Award shows that the learned arbitrator has required both parties to bear their own costs.
43. Pertaining to the counter-claims of Delhi Jal Board, needless to state that since delay was held attributable to Delhi Jal Board, learned arbitrator held nothing payable under Claim No. 1. Rightly so.
44. In respect of Claim No. 2, learned arbitrator rightly held that since delay was entirely at the doorstep of Delhi Jal Board, Delhi Jal Board would not be entitled to loss of credibility.
45. Counter-Claim Nos. 3 and 4 were rejected on the ground that benefit of MODVAT was already granted to Delhi Jal Board because of the reason while allowing Claim No. 1, benefit of MODVAT was taken care of, in that, said sum was reduced from the final bills as held payable by the learned arbitrator.
46. In view of the fact that delay was attributable to Delhi Jal Board, Counter-Claim No. 6 was rightly rejected by the learned arbitrator. On issue of Counter-Claim No. 5, being the claim towards cost of arbitration, as noted above, learned arbitrator required both parties to bear their own costs.
47. Delhi Jal Board cannot question the award pertaining to costs for the reason that principally, award is against Delhi Jal Board and finding of fact that delay was occasioned due to acts of Delhi Jal Board would militate against any claim of Delhi Jal Board that it should be compensated with costs.
48. Objections stand disposed of as aforesaid. All objections are dismissed, save and except objection pertaining to Claim No. 4. Objections to the award pertaining to Claim No. 4 are partially accepted and award modified as indicated in para 35 above.
49. No costs.